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How Much Does it Really Cost to Rent an Office?

Renting an office will be one of your biggest operating expenses as a business.

How big? That depends largely on the city and the size of the space. First, a few basics on the relationship between square footage and price.

Office Space Rental Rates

When you search for office space online, you will see figures like “$52/SQFT.” That means rent is fifty-two dollars per square foot per year (or $4.33/SQFT per month). If you know the square footage of the office, you can estimate your annual and monthly rent.

For the purposes of budgeting early on in the process, you don’t necessarily need to know the exact size of the office space you need. Consider that 100-150 square feet per person is the recommended average amount of space to allocate to each employee. A quick count of your employees can help you estimate a rent number that you can then start budgeting against.

You should know, however, that this basic rent calculation  just that: a rent calculation. Office space comes with additional expenses factored in the lease. And even the rent and how it’s defined will need clarification.

The cost of office space can vary significantly within a city. Factors in the cost of an office include building class, building amenities (doorman, lobby, etc), and neighborhood.

Base Rent and Other Costs

Base rent is the amount of rent due a landlord before other expenses, like utilities and maintenance fees. Your lease will define the additional expenses you’re responsible for.

Lease Type Expenses Use Case
Gross Lease You pay rent. The landlord covers everything else up front but may recoup his cost with what is called a “Load Factor” in the rent. Any commercial space
Triple Net Lease You pay rent + taxes, insurance and maintenance fees Any commercial space
Double Net Lease You pay rent + taxes and insurance Any commercial space
Net Lease You pay rent + some degree of taxes, insurance and maintenance fees Any commercial space
Percentage Lease You pay rent + a percentage of your monthly sales. Retail space

Furthermore, landlords stand to increase the rent for every year in the lease term (called “rent steps”). Some landlords will stipulate a percentage increase for every year, others prefer a fixed amount. Your broker can help you negotiate these rent increases.

Usable Square Footage

Usable square footage (USF) refers to the office space leased for your exclusive use. In many cases, an office rental’s usable square footage isn’t advertised. And if it was, you’d probably be tempted to measure it (with a tape measure) anyway.
The actual square footage measurement of a rental is ultimately less important than whether or not it can comfortably accommodate your needs.

Rentable Square Footage

“Rentable” square footage (RSF) is a slightly different matter. In addition to your exclusive office space, rentable square footage includes all the building’s common areas, like elevators, lobbies, stairways and vestibules. Technically, the landlord is leasing these building areas to you as well.

Loss Factor

The percent difference between the usable square footage and the rentable square footage is called “Loss Factor.”
(RSF – USF) / RSF = Loss Factor
Essentially, loss factor tells you how much of a markup there is on your total monthly or annual rent. Industry standards for Loss Factor don’t currently exist for commercial Manhattan real estate, but a Loss Factor over 40 percent would be worth questioning.

Office Space Build-Outs

Further down the line, once you’ve found a space you like, you will need to transform the space into a functioning office. Landlords will often contribute to the renovations with what is called a Tenant Improvement Allowance (TIA), a sum of money to help cover costs. Your broker can help you negotiate how much and how the landlord could allocate it.

Talk To a Broker

Throughout the office leasing process, a broker can help you manage costs and find savings wherever possible. It’s one of the best reasons to work with one.

The best part about working with a tenant broker is that it’s free to you. Tenant brokers collect commissions from landlords, so you won’t pay anything for their expertise and guidance through the office space leasing process.

At SquareFoot, our brokers are equipped with proprietary data and technology to make the most painful parts of finding office space faster, easier, and more transparent. If you’re ready to find the office space your company deserves, contact us today so we can learn more about your needs and budget.

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